Market deja vu: 1968 peak revisited?

By
Ron Scherer, Business and financial correspondent of The Christian Science Monitor /
November 17, 1980

New York

Remember the fall of 1968? Richard M. Nixon, a Republican, had just been elected president; the crewmen of the US Navy Ship Pueblo were captives of the North Koreans; and the stock market was eurphoric.

The similarities between then and now are remarkable, despite the danger in historic parallels. Even so, 1968 was the last great gasp for the new-issues market. Companies would go public one day and the stocks would run up sharply. The same is true today.

At the same time, Robert Stovall, first vice-president and director of investment policy at Dean Witter Reynolds Inc., remembers, everyone was investing in "concepts." Such groups as aerospace, high technology, and cancer research companies were among the favorities. The same is true today. Aerospace and defense issues are strong; companies involved in cancer research are hitting new highs; and any company with a "high technology" look is selling at 20 to 30 times earnings.

Mr. Stovall, who was then director of research for E. F. Hutton, also notes that analysts today are holding meetings to talk about "low-priced speculative stocks," which are the variety the public likes to buy. This was also true in 1968, which was the last time the public really bought stocks and mutual funds in a big way.

Interest rates 12 years ago were also on the rise. In the fall of 1968, the prime interest rate was 6 percent, and four days before the market topped out in 1968 the prime hit 7 percent. By June 9, with the market in a steep slike, the prime peaked at 8.5 percent, its highest level of the postwar period and a record not breached for another three years. Predictions about the future in 1968 were mainly optimistic. Investors Intelligence Inc., a Larchmont, N.Y., company that keeps track of investor sentiment, says that on Nov. 13, 1968, some 49.3 percent of the investor services it surveyed expected a bull market. Only 28.8 percent expected a bear market.

Today, however, according to the service, more investors are expecting a bear market than a bull market. Only 29.1 percent of the investor newsletter are bullish, while 46.5 percent are bearish. It might be noted, though, that investor sentiment has been known to change quickly.

Bob Nurock, an analyst with Butcher &amp; Singer, a Philadelphia-based brokerage house, believes there are other problems with drawing comparisons between 1968 and today. Chief among his objections is the relatively low valuations of most stocks. "There are some interesting historical parallels," he comments, "but we're not seeing all the excesses that we had in 1968." Mr. Nurock, who worked for Merrill Lynch, Fenner, Pierce &amp; Smith at the time, says customers were smugly confident about picking stocks. Today, he senses that they are wary of being overcofident.

On the other hand, in recent weeks he has noticed a lot of buying in the over-the-counter markets. The volume has been running at about 70 percent of the New York Stock Exchange volume, which, he notes, "is probably close to the speculative peaks" of past market tops.

In 1968, few could foresee that the market was to go into one of the great slumps of the postwar period. By the time the Dow stopped falling on May 26, 1970, at 631, it was off 36 percent from its Dec. 3, 1968, high of 985.21. This is not to say the same thing is going to happen this time. Mr. Stovall notes, "There was a lot of froth in the market then," as the stock market had been rising since 1949 without much of a break. The current rise in the market has been going on only since the spring.

One last note about 1968: Women's skirts were short -- several inches above the knee; today, after several years of longer hems, skirts are going up again.

The so-called "Reagan rally" got a second wind last week and stocks sprinted upward. With the ticker tape running late most of the week, the Dow Jones industrial average posted a gain of 53.93 points, closing at 986,35, the second-largest weekly gain ever. The only bigger Wall Street response was a 74 -point rally in 1974 when President Ford announced his anti-inflation program.

Investors continued to anticipate that interest rates would fall later this year even though, after Friday's market closing, the Federal Reserve Board raised its discount rate, the rate it charges member banks, to 12 percent from 11 percent and even though another round of prime-rate hikes is expected this week.Helping to raise Wall Street expectations of lower interest rates is the slowdown in retail sales and housing starts. A slower economic recovery, investors reason, will be better, since it might stand a better chance of keeping interest rates and inflation down.

Are you waiting for the day that computers start talking back? You know, it will start with little things like "Have a good day," and progress to complete tutorials.

According to a recent research report by Herbert S. Kleiman, an analyst with Prescott, Ball &amp; Turben, a Cleveland-based brokerage house, you may not have to wait much longer. Mr. Kleiman notes that two companies, Texas Instruments and Votrax, a division of Federal Screw Works, have made some major advances in "electronic speech synthesis." With the technology quickly falling into place, it is only a matter of time, the analyst predicts, before demand -- both commercial and consumer -- falls into place. The days of Hal, the talking computer of the movie "2001," may not be far off.

While on the subject of computers, it's worth noting that Apple Computer has formally filed its prospectus with the Securities and Exchange Commission. With all the prefiling publicity, one broker notes, Apple can be sure of a close look by the SEC's lawyers. So it may be a while before investors can take the bite.